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George Jones, left, and Keenan Simmons of Echelon Equity LLC are raising money with the hopes of acquiring a company.

Malia Spencer

Both George Jones and Keenan Simmons, a pair of newly minted Tepper School of Business MBAs, had attractive job offers prior to their May graduation, but the duo turned them down. Instead, they embarked on an effort to raise a search fund and ultimately buy a business to run themselves.

“It seemed like the perfect time to try it; to try something different,” Simmons said, rather than go back to the corporate world.

It also offered a chance to be entrepreneurial without starting a company from the ground up.

“It seems like a model that fits the MBA experience pretty well,” Simmons said. “It blends the total risk of a new venture versus the safety of a corporate job.”

The search fund model has been around since 1984 and is championed by the Stanford Graduate School of Business, which also keeps tabs on such funds nationwide. With this model, the entrepreneur, or searcher, gathers investment to fund the search process for a company that fits its profile. Once a target is identified, the investors can continue with the fund and invest in the acquisition.

Jones and Simmons created the Echelon Equity fund about five weeks ago, and they hope to close the fund with $500,000 in mid-October. They said they hope to acquire a company within one of three business segments: Specialized manufacturing, business process outsourcing or IT services and software. Potential acquisitions would have annual revenue up to $20 million.

The three types of businesses Echelon is pursuing were selected based on Jones’ and Simmons’ background. Jones spent seven years at Whirlpool Corp., prior to attending Carnegie Mellon University’s Tepper School, as a project engineer and procurement manager. Simmons spent more than three years at software company Convergys, where he worked in finance, particularly mergers and acquisitions and due diligence.

Echelon is based in Pittsburgh, but isn’t limiting acquisition options to western Pennsylvania.

Chris Cynkar, an adjunct professor at Tepper, who first introduced Jones and Simmons to the search fund concept, said the model has been picking up popularity in the past five to seven years as it becomes more known. This model gives newer entrepreneurs who may not have the resources to fund a search the ability to do so, he said. And the seller knows there is a group of investors backing up the entrepreneur.

According to Stanford’s most recent data from 2009, there have been 129 search funds raised since 1984. Of those, 41 are still looking for a company to acquire, 33 are currently operating the acquired company, and 55 have either acquired a company and exited, shut down the acquired company or ended the search without an acquisition. Search funds also have an aggregate multiple of investment return of 13.5 times, according to Stanford data.

Echelon isn’t the first search fund to come out of Tepper, although there has not been a flurry of activity in this region.

In 2004, Ned Collins and David Harel started Reticle Partners and raised $2 million from local individuals plus a pair of private equity investors — BlueTree Angel Network of Wexford and Pennsylvania Growth Fund of Shadyside. Reticle purchased Columbia Northwest Inc., a Mammoth, Pa.-based manufacturer of lightweight travel trailers, in 2007 for $5 million. The company changed its name to Aliner, its best known brand, and Collins is still CEO.

Rob Barmen, a managing partner at Pennsylvania Growth Fund, and chairman of Aliner, said he is surprised more Pittsburgh-area students haven’t raised search funds.

“Students these days are pretty entrepreneurial and they’re looking to go out and find ways to get into business, and a search fund is a great way to do it,” he said. “But because of the way the economy has been, maybe there’s some fear.”

Cynkar pegged the slow adoption rate of the model in Pittsburgh more to the region’s conservative investment persona. However, Cynkar also expects to see search fund activity pick up now as more students look to start their own businesses instead of take jobs elsewhere.

“I am seeing an increasing number of young and aggressive entrepreneurs in Pittsburgh, and it’s a really positive sign for the city,” he said. “It’s people with great ideas and they are aggressive in going after them.”

Patty Tascarella contributed to this article.

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